Return of the bulls

 
Michael Bow
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London’s blue chip index reaches its highest level for thirteen years as gold and silver prices lose their lustre

THE FTSE 100 index of Britain’s biggest blue chip companies rallied to a 13-year high yesterday, underscoring a rebirth of confidence for City bankers and stock pickers.

Bullish investors pushed the index up to close at 6,755.63 points – its highest closing level since September 2000.

One capital markets banker told City A.M. yesterday: “The good times are back.”

The closely watched share index, which mirrors how popular stocks are, is now poised to take on its December 1999 record of 6,930 points, as investors take their cue from good company balance sheets to pile into shares.

“It’s been an incredible run and a lot of it is justified with the profit growth we have seen,” Legal and General Investment Management’s stock picking expert Lars Kreckel told City A.M..

“Global equities are up 100 per cent since 2009; if that’s not a bull market it’s difficult to know what is.”

Yesterday’s climb was led by a 4.5 per cent surge in taxpayer-backed Royal Bank of Scotland shares, following an upgrade from a leading market analyst.

Airline EasyJet also took off after solid profits from rival Ryanair pushed investors to back airline stocks.

London’s surge comes amid a broader global equity market rally that has added an estimated $2.3 trillion to the total market cap of listed companies around the world in the last month alone.

Yesterday the index of the biggest 600 companies in Europe – the Stoxx Europe 600 – made further gains, putting it at the highest level since June 2008.

Others indices, like Germany’s blue chip Dax index, breached its July 2007 record earlier this month to close at an all time high.

The bullish stock sentiment has caused other assets like precious metals to come off the pace in recent weeks as investors swing into stocks.

Yesterday gold and silver prices – which have already fallen 17 per cent and 25 per cent respectively this year – slid to fresh lows before reversing at midday to close slightly higher.

Silver plunged to its lowest price in two and a half years before switching tack at midday to end up one per cent.

Gold finished up two per cent, reversing over a week of daily trading losses.

Increasing market liquidity, led by central banks’ massive money printing operations, has helped cut the attractiveness of both gold and bonds yields, forcing investors to rotate into higher yielding equities.

Coupled with strong dividend yields paid out by cautious management teams – the FTSE has returned 54.32 per cent to investors since its last September 2000 peak if dividends are included – and market watchers predict the bull run will continue.

“We do not believe the market is overextended at this time,” Morgan Stanley Euorpean equity strategist Graham Secker said in a note yesterday. “We believe the market has further upside. Although some measures of investor sentiment now appear quite elevated, we are not unduly concerned.”

However, macro research outfit Capital Economics yesterday sounded a note of caution, forecasting about a 10 per cent fall in UK and US equity markets and a 15 per cent dip in European and Japanese equities.

“We continue to expect a substantial correction in equity prices in the second half of the year,” it said.

“Assuming global monetary policy remains loose and Europe emerges stronger, the markets should then perk up again in 2014. But we doubt the current euphoria will last throughout 2013.”

Last night the US S&P 500 –which has gained 17 per cent since the start of the year – finished the session down 0.07 per cent at 1,666.29.

The index has repeatedly broken records over the past two weeks, hitting record highs on ten of the last 12 trading days.